Belles-Rives At The Watergate Condos

When the housing bubble burst it tanked a whole lot of people who bought into the fairy tale story that the price of real estate could only go up. Here's a horror story and how it could have been avoided.

The Joneses (not their real name) bought their condo in 2005 at the height of the housing boom. They committed to a 30 year fixed morrgage on a $435,000 condo that had virtually every luxury imaginable, including a toilet whose seat lifted automatically when someone approached it. They put about $87,000 down on it using funds provided by the sale of their single family house. They got a 30 year fixed mortgage. And then the housing market bubble burst.

Now that $435,000 condo is selling for $310,000 and the Jones are upside down. If they sold the condo the bank wants $125,000 in cash at the closing. How could this have been avoided?

The Joneses could have offered a lease option on the condo with a $10,000 option to buy. Then they would get to live in the condo for two years before making the final buying commitment. If condo prices had increased the Joneses could exercise the option to buy at $435,000 and then sold the condo at the higher market price. If condo prices had declined, as in fact they did, they could abandoned the option and lost their $10,000. They would have lost $10,000 instead of $125,000. Not only that, they could now buy a condo at the market price of $310,000.

Now there's something for you to think about.